Wayne County deputies want out of troubled pension system

Oct. 28, 2013

Written by

Detroit Free Press Staff Writer

Wayne County sheriff’s deputies are making a move to bail out of the county’s underfunded pension system in favor of a nonprofit that runs nearly 800 local government pension plans across the state.

Arbitrator Richard Block agreed this month to let Wayne County Executive Robert Ficano explore the idea of using the Lansing-based Municipal Employees Retirement System of Michigan (MERS) instead of the county pension system, an idea Ficano’s administration also supports.

That ruling was part of a document drafted by Block in ongoing arbitration between the county and police union over pay, benefits and other issues. His ruling notes that MERS has outperformed the county’s pension system by 43% in rate of return over the last five years and is run by a board that includes investment professionals.

The county’s pension system has been mired in claims of mismanagement and is just 46% funded, with pension costs growing 80% since 2007 and projected to cost $69.8 million this year.

Ficano has long criticized the county’s pension board, saying its poor investment choices and decision to pay a 13th check to retirees to offset inflation has resulted in the system’s underfunding. But some pension trustees blame Ficano for the plan’s troubles, saying early retirement incentives have caused liabilities to explode.

Kenneth Grabowski of the Police Officers Association of Michigan, which represents the sheriff’s deputies, cited controversies within the pension fund as one reason to consider leaving it. He noted as an example the fact that Ficano’s former chief of staff Matthew Schenk began collecting a $96,000 annual pension this year at age 41 after an eight-year county career.

“You get more bang for the buck,” he said of MERS. “You do lose some local control, but it stops the shenanigans that (go) with a local pension, like someone getting a pension after working eight years. That’s insane.”

Making the move

The deputies form the largest bargaining unit in the county’s traditional retirement plan, with 780 active employees and about twice that many retirees.

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Block’s ruling applies to sheriff’s deputies. Ken Wilson, the county’s director of labor relations, said Ficano has no plans to ask other unions to make the move.

If the sheriff’s deputies leave, they would take away a proportionate share of the plan’s roughly $750 million in assets, as well as the corresponding liabilities, Wilson said.

“Unfortunately, the liabilities exceed the assets,” he said.

Wilson said the county needs to study the move closely before deciding, stressing there’s no guarantee it will happen. He said the county can’t identify any specific savings from the move, other than the hope of greater investment returns.

“The fact that we are unfunded could make it very difficult to implement,” Wilson said.

Block said the county could make the move between Oct. 1, 2015, and Sept. 30, 2016, at Ficano’s discretion.

“He may have a lot less discretion after 2014,” said pension board member Hugh MacDonald, noting that Ficano’s term expires next year.

A win-win?

The arbitration panel found that letting MERS run the county’s pension plan “is likely, over the long run, to result in lower costs to the county” and “is also likely to result in improved financial performance of the plans, thereby increasing the likelihood that members will receive their expected benefits.”

The average pension plan in MERS is 80% funded. With about 800 plans in the system, only 27 were below 50% funded, according to MERS financial statements.

MacDonald said Block was working with the information provided to him, and the county didn’t make a strong case for its own plan. He noted that different accounting procedures at MERS and the county change the results.

The county averages its losses and gains over a four-year period. MERS uses a 10-year period. Because the MERS portfolio is more than 10 times larger than the county’s, MERS has more latitude with investments as well, MacDonald said.

“The Wayne County Employee Retirement System was under attack and wasn’t allowed to defend itself,” MacDonald said, calling a comparison of the county’s plan against the MERS plan “apples to oranges.”

County officials were pleased with other parts of Block’s ruling, which eases the rules concerning when the county must pay overtime to deputies. The county estimates the average deputy is paid $20,000 a year in overtime.

Wilson said the change triggered by Block’s ruling could save the county $3 million a year.

The county also had sought a 5% wage cut for deputies. Block ruled that instead, deputies will be required to pay 5.1% of their wages toward their pension benefits. Wilson estimates that change with save the county another $3 million annually.